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Hurricanes To Cause Higher Insurance Prices

December 15, 2005

AFX News Limited

NEW YORK (AFX) -- Reinsurance giant Swiss Re sees hurricane activity driving significant price increases among property and casualty providers in 2006, as weather patterns point to more Katrina-like storms in the coming years.

Stunned by the $50 to $80 billion cost of Hurricanes Katrina, Rita and Wilma, the U.S. property and casualty insurance business are re-assessing their risk models amid growing sentiment that the worst isn't over in terms of hurricane activity.

Patrick Mailloux, CEO of Swiss Re America Corp., said insurers are eying a "new perception of risk" as reinsurers lost up to 80% of their capital from hurricane losses in 2005.

Andrew Castaldi, head of catastrophe and perils for Swiss Re Americas, said the U.S. -- and other parts of the world -- could be about 10 years into 20 to 40 year cycle of increased hurricane activity, with the worst years yet to come.

He sees 2006 as "another bad year" for hurricanes, with Swiss Re predicting 2.3 major storms hitting the U.S.

One of the worst case scenario being considered by the industry is a hurricane the size of Katrina hitting the more populated Northeastern U.S., which hasn't had a major hurricane in years.

The comments came at Swiss Re's annual forecasting meeting, with executives throughout the corporation sharing thoughts on the future.

John Fitzpatrick, head of financial services, said the industry will continue efforts to securitize risk associated with hurricanes through catastrophe bonds.

"Risk is a growing business," Fitzpatrick said. "We'll take the risk and diversify it globally."

Turning to the U.S. economy, Swiss Re sees the S and P 500 gaining 4%-9% in 2006.

The Fed will continue to raise rates, with a ceiling of 5% likely.

The housing market will likely slow down, but not cause a recession, with a gradual deflating expected.

Insurers will focus on underwriting instead of investing for gains.

Shares of Swiss Re are not traded in the U.S., but are listed in Zurich. This story was supplied by MarketWatch. For further information see

Copyright 2005 AFX News Limited. All Rights Reserved.

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